A responsible business life
We are fully aware of the fact that businesses may have great impact on environment, society and individuals. Still, the last couple of years we have seen a significant development regarding requirements and expectations for businesses to act responsibly. Increasingly more investors and companies are focusing on responsibility and sustainability – business and ethics coincide.
For a law firm like Wikborg Rein we solve this by asking the right questions to our clients early on in the process.
- Previously businesses' social responsibilities have included contributing positively to economic, environmental and social progress, through voluntary and more or less occasional contributions to society. However, responsible business entails that companies shall prevent and handle possible negative consequences of their own businesses, aiming to achieve a sustainable development, says Elisabeth Roscher, head of Wikborg Rein's Compliance and Crisis Management team.
This trend has also entered the transaction market fully, which we in Wikborg Rein see in connection with our transactional work.
- It is a systematic work which permeates the entire business, also the operational part. One must, amongst other things, map, prevent, remedy and communicate the most serious risks of negative impact of the business, Elisabeth continues.
It is also required to anchor accountability in the guidelines and control systems of the business. This in sum is often referred to as responsible business life or Responsible Business Conduct (RBC).
Wikborg Rein was involved in some of the largest and most profiled transactions in 2018. We see that "soft law" becomes increasingly important for planning and execution of transactions – compliance with the legislation is no longer considered sufficient, according to Elisabeth.
- Even though the requirements and expectations to a great extent are formalized through international guidelines prepared by among others OECD and UN, they are still only enshrined as binding legal requirements to a limited extent. However, such soft law has, over time, a tendency to develop into hard law.
- Internationally there are many examples of such development, e.g. Great Britain's Modern Slavery Act and France's law of companies' "duty of vigilance". One example of equivalent development in Norway is the Procurement Act § 5 which among other things include a requirement stating that employers shall have "suitable routines to promote respect for human rights in public procurement where there is a risk of infringement of such rights".
Expectations to a responsible business
Norwegian authorities have a clearly expressed expectation that both public and private Norwegian companies with international business know and comply with OECD's guidelines for responsible business and United Nations Guiding Principles on Business and Human Rights (UNGP).
This applies independently of the country in which the business operates. Both OECD's guidelines and UNGP require that the companies conduct specific risk assessments and preventing due diligence processes.
- The OECD recently drafted a guide for risk-based due diligence, where the main principals are that a company is to contribute to a sustainable development. They are actively to carry out due diligence to ensure that they do not contribute to negative impact on human beings, society and environment through its own business, in the supply chain or through other business connections, says Elisabeth.
The guide presents a model for due diligence in six different steps with accompanying explanation and practical examples. So-called beaching is an example which illustrates the need for this kind of due diligence in the sale of old end-of-life ships. Beaching implies that ships are driven up on beaches at high tide for scrapping without fixed installations or for collection of hazardous and polluting waste.
- This particularly received a lot of attention in 2017 when 16 ships with Norwegian ownership interests was sent to scraping on Asian beaches, says Elisabeth.
According to Elisabeth this practice implies several challenges from a responsible business perspective.
- The owners achieve higher price for the ship, but beaching implies in no way a responsible practice for scrapping. Very low-wage workers are usually employed, child labour is reported, and there is a great risk for life and health by execution of the work. In addition there is high risk for pollution and environmental damages when environmentally hazardous waste is brought back to sea by the tide.
A responsible lawyer
Wikborg Rein has for a long time assisted clients with compliance and ethics. However, the development is constantly making new demands on what advice to give to the clients. This especially applies in the work on transactions.
- Many compliance measures may appear costly and may not make any immediate or visible gains. Especially in areas where there are no statutory requirements, the businesses may be tempted to choose the easiest and cheapest way out. However, if one has a more long-term perspective it may be exactly these choices which ensure long-term value creation, and which prevent negative media coverage and that investors are withdrawing.
Elisabeth means that it is becoming increasingly important for lawyers to give the clients good advice also in areas which are not strictly regulated.
- It is no longer just a matter of following the law – an increasingly responsible business community will quickly judge companies which do not take their responsibility, Elisabeth concludes.